Controversy over easing oversight of 14.6 trillion won in outsourced projects... KICPA: “Audits must be maintained”

[Financial News] Amid annual budgets for outsourced projects by local governments nationwide totaling 14.6 trillion won, controversy has flared up again over transparency in the use of public funds. The Seoul Metropolitan Council is pushing an ordinance amendment that would replace audits of outsourced projects with “reviews of project expenditure settlement statements” and expand the pool of reviewers to include tax accountants. More than a year after the audit system was reinstated last year, moves to ease the review process again have raised concerns that oversight of tax spending could be weakened.
On the 2nd, the Korean Institute of Certified Public Accountants (KICPA) opposed the Seoul Metropolitan Council’s proposed ordinance amendment on outsourced projects and said the current audit system should be maintained. KICPA said the proposal would “roll back a rigorous audit system to a simplified review of settlement statements” and pointed out that “it is not appropriate to lower the level of scrutiny of outsourced projects in order to expand the pool of those carrying out the work.”
On the 23rd of last month, the Seoul Metropolitan Council announced a proposed “Partial Amendment to the Seoul Metropolitan Government Ordinance on the Outsourcing of Administrative Affairs.” The key provisions of the amendment, proposed by council member Chae Yu-mi, are to replace the existing audits with reviews of project expenditure settlement statements and add tax accountants and tax accounting firms to those eligible to conduct the reviews.
Outsourcing is a system under which local governments entrust private organizations with the provision of public services and other functions. As of last year, local governments nationwide had outsourced-project budgets totaling about 14.6 trillion won. In 2014, Seoul became one of the first local governments to introduce an audit system, aiming to improve transparency and fairness in the use of public funds.
This is not the first controversy over the system. In 2022, despite opposition from the Financial Services Commission, the Ministry of the Interior and Safety, and the Seoul Metropolitan Government, the Seoul Metropolitan Council passed an ordinance replacing audits with reviews of project expenditure settlement statements. This led to a lawsuit seeking to have the ordinance invalidated, and on October 25, 2024, the Supreme Court ruled that it did not violate the Certified Public Accountant Act.
As grounds for its decision, the Supreme Court said at the time that the Local Autonomy Act does not require outsourced projects to undergo audits, and that the review of settlement statements under the ordinance was intended to be a simplified review rather than a rigorous audit.
However, in March last year, the Seoul Metropolitan Council removed the settlement-statement review and reinstated the audit system to strengthen scrutiny of outsourced projects. If the proposed amendment passes, the review method will change again about one year and eight months after the audit system was reinstated.
KICPA stressed that “there must be sound grounds for changing a system reinstated as an audit back to a review of settlement statements,” adding that “an unsupported change could only add to the confusion and burden for the Seoul Metropolitan Government and organizations entrusted with outsourced projects, while fueling controversy over lower standards of scrutiny.”
KICPA also called for a unified nationwide oversight system to be established through an amendment to the Local Autonomy Act. It explained that the methods and scope of scrutiny for outsourced projects vary under local ordinances, resulting in differences in oversight levels across regions even for projects funded with the same public money.
An amendment to the Local Autonomy Act that would explicitly require audits of outsourced projects is currently pending in the National Assembly of the Republic of Korea, introduced by Reps. Shin Jeong-hun and Park Soo-min. Rep. Park Sang-ung has also introduced a related amendment.
KICPA said that “transparency and fairness in the use of citizens’ tax money should be the criteria for deciding whether to change the system,” adding that “the amendment to the Local Autonomy Act should be reviewed and passed promptly to establish a common oversight system for outsourced projects.”
[email protected] Kim Hyun-jung, reporter

[email protected] Kim Hyun-jung Reporter